AirAsia share swap deal is part of solution, not problem: MAS

20 March, 2012

SOURCE: Air Transport Intelligence news

BY: Mavis Toh

Singapore

Amid speculation that a share-swap deal with low-cost carrier AirAsia may be scrapped, the board of Malaysia Airlines (MAS) has reiterated the challenging conditions facing the carrier and the need to act fast to bring it back to health.

"I am writing in such a forthright manner because I have noted that our business plan has not been accepted by all of our stakeholders and has in fact met with turbulence in some sectors," chairman Md Nor Yusof said in a statement.

The carrier's employee union has been protesting against the deal for fear that the restructuring of MAS, and the introduction of AirAsia's founder Tony Fernandes into its board, could bring with it a massive cost-cutting campaign that could result in job cuts.

In August 2011, a deal was announced where AirAsia's parent, Tune Air, will take a 20.5% stake and two board seats in MAS. In exchange, state investment arm Khazanah Nasional, which holds a majority of shares in MAS, would take a 10% stake in AirAsia.

"I would like to be very clear in stating that the share swap is not part of the acute financial problems at MAS, it is part of the solution. Likewise, the collaboration between MAS and AirAsia is not part of the acute financial problems at MAS. It is part of the solution," says Md Nor.

He added that the board is confident that the share-swap would benefit both carriers and that it is already setting up joint-venture firms for procurement and training, and a potential maintenance deal for the AirAsia fleet for its engineering arm.

"Our ultimate belief is that we have the oppurtunity to promote two national champions and build economies of scale that will benefit MAS and AirAsia and Malaysian consumers," he adds.

The chairman urged the carrier's management team and staff to stay focused on implementing initiatives to improve the carrier's financial situation. Over the next six months, MAS will work to improve revenue management, launch a regional short-haul premium airline and introduce Airbus A380 aircraft.

"Malaysia Airlines is a very sick patient, and its condition is quite critical," says Nor.

MAS recorded a net loss of ringgit (M$) 2.5 billion ($816 million) last year, compared with a net profit of M$237 million in 2010.

Now that Etihad Airways has elected to stop funding Air Berlin, forcing the German carrier to file for assembly, a central question is which parts of the business can continue to operate in the long term.